A practical guide to a share purchase agreement governed by Hong Kong or English law

A share purchase deal closes on paper long before the money moves. The instrument that governs that close – and the law chosen to govern it – determines what representations bind, what indemnities pay out, and which court or tribunal stands behind the deal when something goes wrong. For cross-border transactions with a Greater China dimension, that choice is rarely made consciously enough.

A share purchase agreement (the principal transaction document by which a buyer acquires shares in a target company) governed by Hong Kong or English law gives the parties a well-tested common-law regime, extensive precedent on commercial interpretation, and access to a neutral enforcement forum. Under the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance, in force 29 January 2024, a Hong Kong judgment on a breach of such an agreement can be registered and enforced against assets in the Mainland, making governing-law selection a strategic, not merely formal, decision.

This guide walks through the decision, the sequence, the gates at each step, and the mistakes that practitioners on our desk see most often in cross-border share purchases.

Why does the choice between Hong Kong law and English law matter for a cross-border acquisition?

Both governing laws draw from the same common-law tradition, but the practical consequences diverge. Hong Kong law applies directly in the Hong Kong courts and before the Hong Kong International Arbitration Centre (HKIAC), making it the natural choice when the target, the buyer, or the principal assets sit within or near Greater China. English law carries broader international familiarity, particularly for European or US co-investors, and a deeper body of appellate authority on M&A documentation.

The decision is not purely jurisprudential. It is also a forum decision. An agreement governed by Hong Kong law, with an HKIAC arbitration clause and a Hong Kong-seated dispute mechanism, keeps the enforcement route entirely within a framework that connects directly to the Mainland under the 2020 Supplemental Arrangement on mutual enforcement of arbitral awards. That is a material advantage when target assets or guarantors sit in the Mainland.

English law, by contrast, routes disputes through London arbitration or the English courts. Enforcement in the Mainland then runs via a separate treaty track, which adds steps and uncertainty. For purely offshore structures – a BVI holding company acquiring another BVI entity with no Mainland operations – the gap narrows, but it does not disappear. Counterparty risk still depends on where assets ultimately sit.

In our cross-border practice, we see groups default to English law because their template originated in a prior European deal. That default is not wrong, but it should be a conscious choice, not an inherited one.

What are the core components of a share purchase agreement under either governing law?

A share purchase agreement under Hong Kong or English law consists of several interrelated provisions, each carrying its own allocation of risk between buyer and seller. Understanding each component in sequence is the foundation of competent cross-border structuring.

The definitions and interpretation clause sets the perimeter of the deal. It determines what counts as the "Business", what is included in "Completion Accounts", and how ambiguous terms resolve. Vague definitions create disputes; precise definitions rarely do.

The conditions precedent section (often called "CPs") lists the events that must occur before the buyer is obliged to complete. Typical CPs in a Greater China deal include regulatory clearance from relevant Mainland authorities, third-party consents (lender waivers, change-of-control provisions in material contracts), and satisfaction of any applicable competition filing obligations. Each CP should have a long-stop date (the outside date by which all CPs must be satisfied or the agreement terminates), and the negotiation of that date is itself a risk-allocation exercise.

The representations and warranties schedule is the most negotiated section of any share purchase agreement. Representations allocate information risk: the seller states facts about the target, the buyer relies on them, and if they are wrong, the buyer has a claim. In cross-border deals, the information asymmetry between a foreign buyer and a Mainland or offshore target group is acute. Warranties about title, corporate authority, financial statements, material contracts, tax compliance, and regulatory licences are standard. The scope of disclosure – what the seller may fairly disclose to qualify warranties – is equally important.

The indemnity provisions sit separately from warranty claims. An indemnity is a dollar-for-dollar reimbursement obligation for a specified category of liability (tax, environmental, litigation). Unlike a warranty claim, an indemnity does not require the buyer to prove loss beyond the indemnified amount. For cross-border deals with Mainland target companies, tax indemnities covering periods before signing deserve close attention.

The price adjustment mechanism – whether a locked-box structure or a completion-accounts mechanism – determines how the final price is set relative to the target's financial position at close. Each has a different risk profile in a volatile-currency or high-liquidity environment.

Finally, the post-completion obligations, including non-compete and non-solicitation undertakings, transition-services arrangements, and any earn-out provisions, bind the parties beyond the completion date and are enforced as contractual obligations under the chosen governing law.

How does the sequence of a share purchase transaction actually run, step by step?

The sequence of a share purchase transaction is not a checklist that can be re-ordered freely. Each step is a gate: the next step only opens when the prior one is complete. Misunderstanding the sequence is the single most common cause of delay and failed completions in our cross-border practice.

Step 1 – Structuring and law selection. Before any document is drafted, the parties must agree the acquisition vehicle, the governing law, and the dispute-resolution mechanism. For a Hong Kong or English law deal, this means selecting the entity through which the buyer acquires (a Hong Kong company, a BVI holdco, a Cayman entity), confirming that the choice of law is enforceable in each jurisdiction where assets or parties sit, and setting the seat of any arbitration or the jurisdiction of any exclusive court clause.

Step 2 – Due diligence. Legal, financial, and tax due diligence on the target precedes the drafting of the share purchase agreement. Due diligence findings directly populate the representations and warranties: if the due diligence reveals a material issue, it either becomes a warranty, a specific indemnity, or a condition precedent. A buyer who signs without completing due diligence is relying entirely on the seller's representations and has lost the primary mechanism for pre-signing risk identification. The due-diligence process for a Mainland-operating target typically includes corporate-record searches, title searches, and tax-compliance reviews across both the offshore holding structure and the onshore operating entity.

Step 3 – Term sheet or heads of terms. A heads of terms document (also called a letter of intent or memorandum of understanding) records the principal commercial terms agreed before full documentation. Under both Hong Kong and English law, heads of terms are generally non-binding on the substantive transaction, but certain provisions – confidentiality, exclusivity, break-fee arrangements – are expressly made binding. Parties should not assume the entire document is non-binding; it requires careful drafting.

Step 4 – Negotiation and execution of the share purchase agreement. Drafting begins with the buyer's counsel, who produce a first draft incorporating the due-diligence findings and the agreed commercial terms. Negotiation focuses on the warranty schedule, the disclosure letter, the indemnity basket and cap, and the definition of material adverse change. Under Hong Kong law, the Misrepresentation Ordinance applies and shapes the remedial regime for pre-contractual statements made outside the written agreement; under English law, the equivalent statutory provisions and the Hedley Byrne line of cases on negligent misstatement apply. Both regimes reward comprehensive disclosure letters.

Step 5 – Satisfaction of conditions precedent and regulatory clearances. Once the agreement is signed, the parties move to satisfy the CPs. In Greater China transactions, this may include filing for Mainland merger-control clearance, obtaining foreign-exchange approvals where relevant, and notifying any applicable securities regulator. The buyer's right to walk away if CPs are not satisfied by the long-stop date, and the consequences of a deliberate failure by either party to pursue CPs, are expressly governed by the agreement.

Step 6 – Completion. At completion, the seller delivers the share certificates and signed stock transfer forms, board resolutions, and any third-party consents; the buyer delivers the purchase price. Under both Hong Kong and English law, title passes at completion, not at signing. The Companies Ordinance governs the registration of the transfer in Hong Kong-incorporated targets. Completion is simultaneous with delivery: the exchange of documents and the payment of price happen at the same moment, under the same governing-law regime.

Step 7 – Post-completion steps. After completion, the buyer files the share transfer with the Companies Registry (for a Hong Kong company), updates the Significant Controllers Register (SCR), which all Hong Kong-incorporated companies must maintain, and implements any agreed transition arrangements. Failure to update the SCR is a compliance risk under the Companies Ordinance.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost. For a structured assessment of how this sequence applies to your acquisition, write to us at info@lockhartyip.com.

What does the cross-border interface look like between Hong Kong, offshore holding structures and Mainland assets?

Most Greater China share purchases do not involve a single governing-law system. The acquisition vehicle may be a Cayman or BVI company; the target may hold through a Hong Kong intermediate company into a Mainland Wholly Foreign-Owned Enterprise (WFOE) or a joint-venture entity; the seller may be a family trust or a fund with offshore domicile. The share purchase agreement governs only the transfer of shares in the target – typically the offshore holding entity. Everything below that entity is governed by the law of its own jurisdiction.

This creates a structural tension. The share purchase agreement, governed by Hong Kong or English law, gives the buyer representations and warranties about the Mainland-level operations. But the buyer's ability to verify those representations and to enforce an indemnity claim depends on the Mainland entity's regulatory record and on the seller's ability to fund any claim across jurisdictions.

How does a buyer protect itself? Three mechanisms are standard. First, by requiring that the seller give representations at both the offshore level and, through a Mainland-law disclosure obligation, at the onshore level. Second, by structuring part of the purchase price as an escrow or a deferred payment, held in Hong Kong, to satisfy indemnity claims without needing to pursue assets in the Mainland. Third, by ensuring that the arbitration or court clause produces an award or judgment that is enforceable in each jurisdiction where assets actually sit. Under the HKIAC Administered Arbitration Rules (2024 Rules, effective 1 June 2024), an HKIAC award from a Hong Kong-seated arbitration may be submitted for enforcement in the Mainland under the 2020 Supplemental Arrangement, giving the buyer a direct route to Mainland execution without a second set of proceedings.

The BVI and Cayman levels raise a separate question: do changes in those entities require notification to or consent from their respective registries? Under the BVI Business Companies Act and the Cayman Islands Companies Act (named generically here), a share transfer in the topco may trigger filing obligations at the offshore level. Those obligations sit outside the Hong Kong or English governing-law framework of the share purchase agreement itself but must be satisfied for the transfer to be effective.

Consider a scenario from our desk: a European fund acquired a mid-market manufacturing group via a BVI holdco, with a Hong Kong intermediate company above two Mainland WFOEs (summer 2026). The share purchase agreement was governed by Hong Kong law, with HKIAC arbitration seated in Hong Kong. Due diligence had been conducted on the BVI and Hong Kong levels but not systematically on the Mainland operating entities. Post-completion, a tax liability arising from a pre-completion period at the Mainland level emerged. Because the agreement included a specific tax indemnity with no Mainland-law carve-out and an escrow of a portion of the consideration held in Hong Kong, the buyer made a claim against the escrow rather than pursuing the seller in a foreign jurisdiction. The matter resolved within the contractual indemnity mechanism.

What are the most common mistakes, and how does a well-structured agreement avoid them?

The most common mistake in a cross-border share purchase is treating the governing-law selection as a formality and the arbitration clause as boilerplate. Both are structural decisions with enforcement consequences, not administrative choices.

The second common mistake is an incomplete disclosure letter. Under both Hong Kong and English law, a seller qualifies its warranties by disclosing matters that would otherwise amount to a breach. A disclosure made fairly and with sufficient specificity limits the buyer's warranty claim to the extent disclosed. Where a seller delivers a disclosure letter that refers generally to "all matters in the data room" without specific disclosure, courts and tribunals under both governing laws have shown limited tolerance for such general references. The buyer does not benefit from being vague, either: a buyer who accepts an insufficiently specific disclosure letter has limited its own warranty claim.

The third mistake is misaligning the representations with the actual corporate structure. If the target is a Cayman holdco above a Hong Kong company above a Mainland WFOE, representations about the "Business" should explicitly extend to each level of the structure. A representation that the target "has no undisclosed liabilities" means little if the word "target" is defined to refer only to the Cayman topco and excludes the Hong Kong and Mainland operating entities.

The fourth mistake is a warranty cap that does not reflect actual deal economics. Both Hong Kong and English law permit parties to agree contractual limitations on liability. A cap set at a nominal percentage of the purchase price may leave a buyer with a large claim but a limited remedy. A cap set without a corresponding basket or de minimis threshold may expose a seller to claims for immaterial matters. Calibrating the cap, the basket, and the de minimis in light of the verified due-diligence findings is a drafting exercise, not a negotiating concession.

Finally, parties overlook the interaction between the share purchase agreement and the target's existing financing arrangements. A change of control clause in a target's credit facility may accelerate the entire debt on completion. If the buyer has not obtained a waiver or a consent from the relevant lenders before completion, the completion itself triggers an event of default. This is not a share purchase agreement issue in isolation: it is a gap between the acquisition document and the target's existing contractual architecture that due diligence is supposed to catch.

If an earlier filing, structure or enforcement attempt has produced a stalled result, a second read can identify the strategic error and the routes still open. To discuss how your agreement's structure aligns with the enforcement route, contact info@lockhartyip.com.

How does a buyer assess which governing law and dispute-resolution mechanism best fits its position?

The decision is best made by running a short decision matrix across the key variables.

Where the buyer or the target is primarily connected to Greater China, and enforcement of any claims against the seller or against retained assets in the Mainland is a realistic scenario, Hong Kong law with HKIAC arbitration seated in Hong Kong is the stronger choice. The 2020 Supplemental Arrangement gives direct Mainland enforcement of HKIAC awards. The Mainland Judgments Ordinance in force since 29 January 2024 gives registration of Hong Kong court judgments in the Mainland. Either route is available; the agreement should specify which mechanism the parties intend to use.

Where the target's assets are predominantly offshore, where the co-investors include European or US parties who require a familiar documentation framework, and where the enforcement route is unlikely to involve Mainland assets directly, English law with London-seated arbitration remains a well-established option. It carries no disadvantage in terms of legal quality; the disadvantage is the additional enforcement step if Mainland assets ever come into play.

Where the parties are offshore entities – a BVI seller and a Cayman buyer, for instance – with no material Hong Kong nexus, the choice of governing law should still be Hong Kong or English, not the law of the offshore jurisdiction itself. Offshore company statutes are not designed as governing law for complex commercial agreements; they govern corporate formalities. The agreement governing the transaction should be governed by a full commercial-law system.

The interaction with stamp duty also matters. In Hong Kong, the transfer of shares in a Hong Kong-incorporated company attracts ad valorem stamp duty of 0.1% per party (0.2% in total) on the higher of consideration or market value. Shares in a non-Hong Kong company holding no Hong Kong-situated assets are generally outside this charge, though the position should be verified on the specific facts. For BVI or Cayman holdcos, stamp duty is typically not levied at the offshore level, though registration fees and filing requirements apply.

A second scenario from our practice: a Middle Eastern family office acquired a Hong Kong-listed subsidiary via a privatisation structure, using a Cayman acquisition vehicle. The share purchase agreement was governed by English law on the instruction of the family office's European counsel. Post-completion, a warranty dispute arose regarding the target's contracts in the Mainland. Enforcement of the English-law arbitral award in the Mainland required additional steps compared to an HKIAC route. The family office's advisers conceded, on reflection, that the governing-law selection had added time and cost to what should have been a straightforward indemnity claim.

What is the self-assessment checklist before proceeding?

Before instructing counsel to draft or review a share purchase agreement, a buyer or seller should be able to answer the following questions.

On structure: What is the acquisition vehicle? Is it incorporated in a jurisdiction whose stamp duty and filing requirements are compatible with the deal structure? Does the vehicle have the necessary substance to hold the target under any applicable economic-substance regime?

On governing law: Has the choice between Hong Kong and English law been made consciously, with reference to where assets sit and where enforcement may be needed? Has the arbitration clause (or exclusive court clause) been drafted to produce an award or judgment enforceable in every relevant jurisdiction?

On due diligence: Has legal, financial, and tax due diligence been conducted at every level of the target structure – offshore holdco, Hong Kong intermediate, and any Mainland or other operating entity? Have the due-diligence findings been mapped against the warranty schedule and the specific indemnities?

On representations: Are the representations written to cover the actual corporate structure of the target, not merely the topco? Is the disclosure letter specific enough to be effective under the governing law?

On price mechanics and CPs: Is the long-stop date realistic given the regulatory clearances required? Is the price adjustment mechanism – locked-box or completion accounts – appropriate given the target's financial profile?

On post-completion: Have the parties identified the filing obligations in each relevant jurisdiction triggered by the share transfer, including the Significant Controllers Register, offshore-registry notifications, and any Mainland regulatory filings? Are transition arrangements documented?

These questions do not have universal answers. They structure the conversation between a buyer and its cross-border counsel at the outset, when the choices are still open.

For further reading on structuring acquisition vehicles and minority protections in offshore joint ventures, see our analysis on minority protections in a BVI joint venture and our overview of financing an acquisition with cross-border security. Our full M&A practice is described at Lockhart & Yip M&A & Transactions.

Related practices

• Holding Structures – acquisition vehicle selection and offshore structuring across Greater China
• Tax Positions – FSIE regime, stamp duty exposure and treaty implications on cross-border share transfers

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.